Final post in our two part series – Debt Reduction Strategies. Read part one here.
The “Debt Stacking Method” is better on your pocket in the long term.
Now, if you wanted to get especially technical, you also do have further options such as transferring the balance of your credit card to an ‘interest free’ credit card, however these are usually offered with terms and conditions attached, which will more than likely only have this benefit for a certain amount of time – which you will need to keep in mind if you do not plan on having all the other debt paid off in the given time. It would be best to speak to a debt reduction specialist before looking at jumping ship to an interest free credit card without having a plan in place.
Now the “Debt Stacking Method” personally not my favorite, however, is the most cost effective as you will minimise the amount of interest paid. In this scenario, you will make the minimum monthly repayments on all debt to minimise the chance of getting late payment fees. You would focus solely on paying back the credit card with a balance of $20,000 and an interest rate of 19%, once this has been paid, you would focus on the personal loan with an interest rate of 8% using the money that you would have been using to pay off the credit card debt. Once you have paid this off, you would focus on paying back the car repayment, using the money from the credit card debt, plus the car loan minimum monthly repayments, and, of course, the extra funds from the interest.
You look at paying off your debt with the highest interest rates, then once that has been paid off, focussing on paying the amount with the second highest interest rate and so forth.